Like any aspect of your construction business, hiring subcontractors to work with you on projects requires a plan and due diligence. If you are in construction for the long haul, you need to overcome these four pain points when selecting subcontractors:
- A sub’s reputation that threatens yours.
- Subs that don’t have the technical skills to match the work and the project.
- Subs that bring increased risks because of their financial shortcomings.
- Subcontractor organizations that don’t align with your business goals.
All of these individual points hinge on each other to some degree. For example, a sub that doesn’t have good project management skills will probably suffer from a less than stellar reputation. A sub with poor organizational skills is more likely to have financial difficulties. When you consider these four factors as you qualify subs, you can reduce the pain that comes from hiring the wrong ones.
The difficult part of reputation is perception. Perceptions serve as truth to people, and people base their decisions on them. Whether they’re true or not is of secondary importance. When developing a long-term business, you have to consider the reputations of everyone with whom you partner. To assess reputations of subcontractors, you only need to ask. Ask other subcontractors. Ask suppliers and other general contractors. Sure, there will always be individual biases and prejudices, but when you get a wide range of perspectives, you can form an opinion about a sub’s reputation. It’s always going to be subjective, and you will no doubt have to temper your findings with other facts you collect along the way.
Can you see obvious shortages or places where there is too much blue sky when you compare it to their project work breakdown schedule?
A subcontractor needs more technical ability than just what’s required to do the work. If a drywall contractor doesn’t manage their portion of the project correctly, they risk the painter’s work. If an electrical contractor doesn’t find technicians who understand both the spirit and intent of the electrical code, they won’t handle exceptions correctly. When subcontractors don’t have site-wide safety plans, quality initiatives, or project management skills, their technical skill shortage will cause headaches for everyone on the job. Make a list of all the technical skills each type of trade subcontractor needs to succeed on your jobs. Use it to assess each sub when you qualify them.
Communication and collaboration are also critical technical skills on construction projects. Subcontractors with articulate employees interested in collaborating with other project participants will make project communications more timely and accurate. Take some time to meet and talk with potential subcontractors and their employees so you can gauge this increasingly important aspect.
You need to know your subcontractors can handle more than just the cost inputs for the labor, equipment, and materials on their portions of the job. Budgeting is important, but so is managing risk, using reliable financing sources, and not robbing Peter to pay Paul. Do they have the bonding capacity, insurability, and guarantees adequate for the risks they bring? How about their project budget? Can you see obvious shortages or places where there is too much blue sky when you compare it to their project work breakdown schedule?
Ask for a financial statement and see whether it is current and complete. Make sure current assets are greater than current liabilities. Next, calculate working capital and minimum capacity, and check the income statement for a positive net income and a profit percentage in line with trade and industry standards.
It’s much better if you can partner with people who have similar long-term plans. A sub that is just in it while waiting for something better to come along might work out on a job or two. However, you should keep looking for someone who can complement your business long term.
A sub’s organizational structure also needs to complement the types of projects you take on. For example, a subcontractor with a very shallow rank of supervisors will struggle to keep up on projects where their trade is spread out over multiple buildings or is geographically dispersed. A sub with a well-defined and mature organization will have qualities that will complement business partners for the long haul.
Nobody is perfect, and every business relationship brings tradeoffs. Nevertheless, by aligning yourself with subcontractors who complement your business goals and project types, you’ll clear the path to long-term profitability.